What does Tam Sam Som stand for?
Before you enter the market with your product, you have to keep 3 important questions in mind.
What is the TAM SAM SOM for my product?
Here the definition:
Tam: Total Available Market
(Focus on total market / size)
Example: Total LED Market
Sam: Served/Serviceable Available Market
(Focus on your own technology/ services)
Example: Living colors LED market < segment of total LED market
Som: Serviceable Obtainable Market
(Which realistic market share can be obtained by myself, considering competition, countries, my sales/distribution channels and other market influences? )
Example: My realistic goal to sell Living Color Products into the LED market.
Here a deeper explanation to TAM SAM SOM
in terms of OEM/ODM business model:
Example:
I am company XYZ
> an OEM Manufacturer & supplier entering the LED Living Colors Market:
TAM: From my market research and reports which I have read, I found out that the total number of LED Living Colour Lamps being sold in 2011 in Europe will be approximately 1 Million pieces.
< Total Available Market
The TAM Question:
What is the Total Achievable Sales Amount incorporating all market players together?
SAM: Philips has the highest market share of the LED Living Colour lamps with 800.000 units a year. The remaining 200.000 units are being sold by other brands.
>Philips SAM (Servable Available Market) is 80% of the total market of 1 Million LED Living Colours lamps.
The SAM Question: What can Philips achieve in 2011 in sales?
SOM: My strategy as OEM manufacturer is to focus and work together with the Top Market Player, in this case Philips only. As I am a new customer to Philips, they agree to test me out and ask me to produce only 200.000 pieces of the 800.000 that they expect to sell in 2011.
The remaining 600.000 units are being produced by their current suppliers.
In this case my SOM (Serviceable and Optainable Market) will be 200.000 pieces (a share of 25%) of the 800.000 pieces from Philips. This SOM is my realistic and reachable target for 2011.
The SOM Question: What can I (as company XYZ) achieve in 2011 selling to Philips?
Questions?
Just contact me on carstenschade@hotmail.com
5 comments:
Question from Nathan:
How would you calculate $ TAM?
Would you use the industry avg unit price, or would you use your avg unit price?
In the case of the iPhone, using the industry average would be misleading because the iphone allowed for the average unit price to increase therefore enlarging the TAM. However, if your solution is 2X the unit price then TAM based on your unit price does not make sense either.
Curious…
Nathan
Answer to Nathan:
Hello Nathan!
1) It does not make sense to calculate the TAM from the Iphone for 1 specific product. The I-Phone is not a market, it is a product. Here you need to calculate the Smart phone market where there is more competition.
2) The Tam is the total amount of money people spend on Smart phones in units sold or $ money, so you would calculate from the industry weighted average unit price.
3) If you want to calculate the money, just mulitply the number of units by the average price.
4) If you are the producer of the I-phone, you can calculate the SAM. Because you have 1 product to service the total smart phone market.
Hope this explanation helps!
Kind regards,
Carsten Schade
Extra Question from Nathan!
Thanks again for your input. I am almost there. One last round if I may. Let’s use a real example. 200M touchscreen phones worldwide. The average price is 100$. So the touchscreen phone TAM is $20B. Now, I have a high end solution that can serve 100% of these touchscreen phones. So, the SAM in units is 200M touchscreen phones. But, my price is $150. This would put the SAM at 200M * $150 = 30B.
I think the features, region etc… would be taken into account in the SOM calculation.
Thanks again. Nathan
Answer to Nathan:
Hello Nathan!
The first thought with your TAM of $ 20Billion is correct. But, because not all the customers will buy high end products, therefore you don’t serve 100% of the market. If 20% of all customers buy a high end product at $ 150 your SAM is: 200 Million pieces x 20% x $ 150=
$ 6 Billion SAM.
Because not all high end customers buy YOUR product, you can expect to achieve a market share of ca. 50% of the high end market share.
In this case your SOM will be 50% of $ 6 Billion. Your SOM is $ 3 Billion!
Customer Question:
Hi Carsten,
Thanks for an amazing blog about the TAM/SAM/SOM. I can't believe how much little info there is on the web about this.
I'm trying to determine the TAM SAM SOM for a new search engine which has a mobile aspect. It's really confusing because what we're offering specifically is not being offered so what can a person take into consideration in such a scenario?
Also you calculate TAM/SAM/SOM in units as in potential units sold. What about $ amounts? Is that ok...or in my case is it Search engine users?
Regards,
Mr.....
Answer to Questions:
Hallo Mr. ...!
To answer your questions:
1) When you are talking about a search engine to be used by mobile devices > All mobile internet users are your TAM.
2) Your SAM will be reduced if you only develop software for Windows Mobile users.
Thus the customers for the Iphone and Symbian are excluded in your SAM.
3) For the SOM, you cannot reach all the customers, so you need to be realistic and first figure out your target groups that you can really reach > Like early adopters or business travelers for whom your product has specific value.
For the $ amount you need to take the volume/units and just put a price onto it.
Hope this explanation helps!
Regards,
Carsten
How do i calculate SAM for the semiconductor industry in India
Can you recommend any good books on the subject?
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